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Payment Formula

Medicare Doctors Face Pay Cut—Again

Senate passes measure but "doc fix" must go to House

doctor in the house?

Thinkstock/Getty Images

Ralston, an internist in Fayettesville, Tenn., with 2,000 patients—three out of four of them on Medicare—says that the economic impact of a 21 percent pay cut would be devastating. Many primary care practices now have overhead costs that can range up to 67 percent, he says, but the cut would apply to gross revenues. So, for example, a current Medicare payment of $1,000 minus $670 overhead results in $330 left for income. A 21 percent cut, however, would slice off an additional $210 from the gross, leaving $120 for income. “So the net reduction in the salary is 64 percent, not 21 percent,” Ralston says. “For any practice now teetering, just the threat of that happening might be enough to throw it over the edge.”

Continuing cuts also deter new medical graduates from entering primary care, contributing to a shortage of family doctors that is already critical.

The American Medical Association has consistently held out for repeal of the payment formula, rejecting an earlier proposal from Democratic leaders to postpone the cuts for five years. Other groups and many members of Congress have also called for a permanent fix.

“Congress would repeal the formula if they didn’t have to pay for it,” says John Rother, AARP’s director of policy. “But under budgetary rules it has to be offset, and nobody knows how to offset a cost that large without imposing a new tax or disrupting some other part of health care.”

AMA president J. James Rohack, M.D., argues that repeated postponements have only worsened the cost of repeal. “In 2005, physicians faced a cut of about 3 percent and the cost of permanent reform was $49 billion,” he said last week. “This year, the cut has reached a staggering 21 percent and the cost of reform has more than quadrupled to $210 billion.”

Band-Aid, not a cure

Meanwhile, the Band-Aid approach “undermines confidence in Medicare on the part of both providers and patients,” says Rother. “The current payment formula is not doing what it was designed to do, so we should replace it with something else.”

The consensus of health policy experts is that Medicare’s current fee-for-service system—in which doctors are paid separately for each service they provide—should be replaced with a system that rewards quality of care and outcomes as a way to reduce the program’s spiraling costs. Some medical centers, and pilot programs in Medicare, have already demonstrated that this can work, and the new health care law takes steps in that direction. But to achieve it on a national scale, Rother adds, “is going to take a while.”

Patricia Barry is a senior editor at the AARP Bulletin.

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